Music and Metrics

October 1, 2010

“If music did not pay, it would be given up." So wrote Chief Justice Oliver Wendell Holmes in a landmark Supreme Court decision in 1917.

1917:

One evening in 1915, composer and ASCAP founder Victor Herbert walked into Shanley’s Restaurant in New York City, heard his music being played, and felt he should be paid for the performance, even though it took place outside the traditional context of paid admission to a concert hall or theatre. Herbert and his publisher sued, and by 1917 the case went all the way to the Supreme Court, where Justice Oliver Wendell Holmes sided with Herbert, arguing that the restaurant’s profit goal was served not only by the dining, but also by the music it offered. As Holmes famously said, “it is true that the music is not the sole object, but neither is the food.” The ruling established the right of performing rights societies such as ASCAP (and later, BMI and SESAC) to collect license fees for non-dramatic performances of musical works under the Copyright Act.

2010:

While performing rights are firmly part of copyright law, disputes over how to determine the financial value of those rights continue to be the subject of legal proceedings. Some of these disputes are being resolved at proceedings taking place in “rate court,” a federal court in the Southern District of New York. In case you are wondering, a rate court allows licensees to litigate rates set by the performing rights societies under consent decrees under which the societies operate in order to address antitrust concerns.

Decisions Affect You And Your Income:

Let’s examine a recent appeal of a rate court decision involving ASCAP on the one hand and online enterprises Yahoo! and RealNetworks on the other to better understand. In this decision two major issues on appeal were presented: 1) Does an internet download of a musical work constitute a public performance that must be licensed?; and 2) Where music is streamed and undeniably “heard,” what percentage of web site overall revenues represents the appropriate license fee?

The Outcome Part One: A Download is not a Performance:

The appeals court determined that when an internet user downloads a song file in circumstances where the music is not actually heard (such as when purchasing a digital track), no performance as defined in the Copyright Act takes place, and thus no performance royalty is payable on such downloads (the ruling does not address the separate issue of mechanical royalties arising from internet sales of digital recordings).

The court acknowledged the possibility that under other factual circumstances, a transmission of a song could constitute both a stream that was subject to licensing fees as well as a download that is not.

With respect to policy arguments such as whether United States copyright law would now be in conflict with other countries, the Court noted that Congress had the power to amend the Copyright Act in the future if it so chooses.

The Outcome Part Two: What is the Value of Music Performance on the Internet?

The other issue in this case presented a high-tech version of the same question posed by Holmes back in 1917: how do you divide up the profit generated by the music, and the profit generated by things other than the music? Here the court agreed with Yahoo! and RealNetworks ruling that that the internet companies were entitled to a reconsideration of the license fee rates and recommend the use of a complex “music-use-adjustment” factor or “MUAF”.

According to the “metrics” of the MUAF, the habits of internet users can be analyzed by reference to advertising “impressions” that measure how users interact with web sites. For example, the Court accepted the statistic that when an internet user opens a computer window in order to start a streamed song, the user then typically minimizes the computer window and proceeds on to other multitasking activities, such as search engines, news, or games. According to the advertising rates charged by the web sites, the minimized “music window” was less valuable as advertising revenue than the “active windows” used subsequently, even though the music continued to be heard by the user.

The Devil is In The Details

The court did not rule on how these “metrics” would determine the actual license rates and sent the case back to the lower courts to figure out what percentage license fee applies to what percentage of revenues generated by what percentage of users viewing what percentage of the web site.

Does this “metric” fairly reflect the value of music on the internet? Or does it devalue music as nothing more than one click on the internet highway to another destination? To paraphrase Justice Holmes, the music may not be the sole object, but neither is the web surfing. The answer, in light of the appeal court’s opinion, awaits the determinations made on remand to the Southern District of New York.

Future issues of Copyright Corner will follow this and other copyright law developments important to the music publishing community.

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This month’s article is written by Corey Field. Corey is the current President of the New York-based Copyright Society of the USA. He practices copyright and entertainment law in the Los Angeles office of Ballard Spahr LLP, where he represents clients nationwide in both litigation and transactional matters. He can be reached at fieldc@ballardspahr.com. Any opinions expressed are solely those of the author.

Note from the AIMP: Since the ruling is of interest to all AIMP members, we reproduce from the ASCAP website their statement regarding this case:

ASCAP Statement on the Second Circuit decision in Yahoo/Real Networks

ASCAP and its songwriter, composer and music publisher members are, of course, disappointed in the Court's decision that there is no public performance in the transmission of certain musical downloads. We are studying the decision and will determine what further action is appropriate. The Second Circuit remanded the rate calculation back to the district court with instructions to determine whether there are "more precise or practicable" methods of fixing a rate for the use of our members' music. We anticipate that in the end, the proceeding will result in a fair and favorable license fee to be paid by commercial online services for the valuable intellectual property they use to sustain their businesses -- the music created and owned by the songwriters, composers and music publishers ASCAP represents.

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